The sustainability of growth in Canada’s apartment marketSeptember 9, 2019
PART 1 of 2: Fundamentals that drive demand
Population growth, demographics and housing affordability are currently underpinning the strong demand for apartments in Canada. These factors, together with insufficient and constrained rental supply, will intensify housing challenges, especially in Canada’s gateway markets. Due to the growing imbalance between housing demand and supply, the apartment market in Canada is expected to continue to remain strong for the foreseeable future.
Apartments are a vital part of the housing solution for many Canadians; whether entering the rental market out of preference or by necessity. For example, immigrants who enter the country and do not have the capital to own a home remain, on average, 10 years in the rental market before home ownership becomes a viable option.
As far as net immigration into the GTA, Toronto edged out Vancouver as the top market to watch in 2018. In fact, levels hit a 15-year high, resulting in a pent-up demand for housing.
We are seeing a trend in our population opting for an apartment-rental lifestyle that is not related to affordability. As their children fly the coop, aging baby boomers are downsizing from single-family homes. This trend translates to an increased demand for rental properties in familiar, desirable communities that provide convenient transportation and amenities. When millennials - the offspring of these baby boomers - reach the typical age for making their own independent households, more of them are choosing affordable urban apartment rentals over purchasing houses in the suburbs.
“According to a recent Centre for Urban Research and Land Development study, there are about 730,000 millennials living in the Greater Toronto and Hamilton Area who may be planning to move on from living in their parents’ homes and from sharing a dwelling with roommates in the next 10 years, potentially creating 500,000 new households,” says Dave Wilkes, Building Industry and Land Development Association (BILD) President and CEO.
“In the next decade, we are likely to be part of a significant housing shift in our region, as a large wave of millennials start looking for a place to live of their own,” says Wilkes. “Add the estimated 115,000 new residents that come to the GTA every year, and the area will see itself in a housing crisis.”
The challenge for millennials planning to move out of their parents’ home and into the rental market will be to save up for a down payment while trying to keep up with paying the current, escalating rental rates. Toronto is the most expensive Canadian rental market, with average rates for one-bedroom units at slightly more than $2,100 per month and $2,873 for two-bedrooms.
“Potential homebuyers will need to alter their expectations and possibly delay entry into homeownership,” says Dana Senagama, manager, market analysis for Canada Mortgage and Housing Corp. (CMHC).
Across Canada, all three levels of government have attempted to control housing prices, which are anticipated to appreciate modestly throughout the remainder of 2019. The federal government has tightened rules for mortgages even further, implemented new restrictions on government insurance for low-ratio mortgages, and issued new reporting rules for primary residence capital gains exemptions.
The Ontario government has also introduced new taxes to curtail speculative investing.
While the underlying objectives are appropriate for the present situation, these initiatives on their own are unlikely to solve the housing affordability crisis.
These government regulations are already creating challenges for all real estate sectors, and it is expected that affordability will only get more difficult for most people.
The exhibit to the right displays a bleak outlook for those hoping to buy a home as, over time, a greater amount of income is needed to service a mortgage.
The cost of breaking into the housing market makes home ownership challenging, and Canadians will continue to consider apartment rentals as an affordable option.
The response to high housing costs has been forgoing ownership altogether. For the first time in decades, demand for rental housing is outpacing home ownership.
As stated in the BC Non-Profit Housing Association’s 2018 Canadian Rental Housing Index, rentals now make up of 32 per cent of the country’s homes. No longer just an emerging trend, permanent renting has been on the rise for several years and is considered a lasting trend and the new reality for Canadians.